Refinancing a commercial mortgage, when does it make sense?

A commercial mortgage isn’t something most businesses think about once it’s in place, but circumstances change and the deal that made sense a few years ago may not be the best fit today. Refinancing a commercial mortgage can reduce monthly costs, release capital tied up in a property or simply bring terms in line with where a business is now. Knowing when it’s worth exploring can make a real difference to the bottom line. 

What does refinancing a commercial mortgage involve?

Refinancing means replacing an existing commercial mortgage with a new one, either with the same lender or a different one, on updated terms. This could mean a lower interest rate, a different repayment structure, or borrowing additional funds against the value of the property. It’s a similar principle to remortgaging a home, but with the added considerations that come with commercial lending. 

Signs it could be worth refinancing

• Interest rates or terms have moved on – if a mortgage was arranged some time ago, especially during a period of higher rates or on a deal that was the best available at the time, there may now be more competitive options on the market. Even a modest reduction in rate can add up to significant savings over the remaining term.
• The property has increased in value – as a commercial property appreciates, the equity within it grows. Refinancing can release some of that equity as cash, which many businesses use to fund expansion, purchase equipment, or strengthen working capital, without needing to sell the asset.
• The current deal no longer fits the business – a business’s circumstances rarely stay the same for the full length of a mortgage term. Growth, a change in trading performance, or a shift in priorities can mean the original repayment structure no longer suits how the business operates day to day.
• A fixed rate period is coming to an end. Businesses coming to the end of a fixed rate deal are often moved onto a lender’s standard variable rate if they don’t act, which can be considerably more expensive. Reviewing options ahead of this point avoids paying more than necessary by default.

What refinancing can achieve

Beyond simply securing a better rate, refinancing can be used to consolidate other business borrowing into a single facility, extend or shorten the mortgage term to better match cash flow, or release capital for a specific purpose such as acquiring another property or investing in the business.

We recently helped a manufacturing business in Wiltshire refinance its commercial premises, releasing capital that was used to fund new machinery without the business needing to take on a separate, higher-cost loan.

Equity release, putting capital back to work

One of the most popular reasons businesses refinance a commercial mortgage is to release equity, unlocking cash tied up in a property without having to sell it. As a commercial property grows in value or the existing mortgage is paid down, the gap between what’s owed and what the property is worth becomes available to draw on.

That released capital can be put to work in several ways. Some businesses use it to reinvest in other properties, using the equity from one asset to fund the deposit or outright purchase of another, building a wider property portfolio alongside the core business. Others use it to inject working capital back into the business, fund an acquisition, or simply build a cash buffer for future opportunities.

This approach is particularly attractive because it allows a business to keep hold of an appreciating asset while still accessing the value within it. Rather than choosing between growing the business and growing a property portfolio, equity release can allow both to happen at the same time. We recently supported a retail business in Swindon that released equity from its commercial premises to fund the deposit on a second investment property, growing its asset base without diverting cash from day-to-day trading. 

Things to weigh up before refinancing

Refinancing isn’t automatically the right move for every business and it’s worth considering the full picture before committing. Early repayment charges on an existing mortgage can sometimes offset the savings from a new deal and any new facility will come with its own arrangement fees and valuation costs. A lender will also reassess the business’s current financial position, so it’s worth reviewing whether trading performance supports the new terms being sought. 

Getting the right advice

Because every commercial mortgage and every business is different, it’s worth having a broker review the numbers before deciding whether refinancing makes sense. We work with a wide panel of lenders to compare rates and structures, so you can be confident you’re getting a deal that genuinely works in your favour.

If you’d like to find out whether refinancing your commercial mortgage could benefit your business, please call us on 01993 706403 or e-mail enquiries@ngifinance.co.uk.